Saudi Arabia has an oil-driven economy, as for several years the country
has been dependent on oil and related sectors for economic growth.
However, focus has shifted to development of other sectors such as
tourism in order to decrease dependence on oil, particularly after the
global financial crisis of 2009 when the oil sector declined at a rate
of 9.0%. The move will also create employment opportunities in sectors
other than oil within the country. Tourism in the country is
significantly dependent on religious tourism and has witnessed an
increase in the number of pilgrims over the years.

Key Highlights

- The presence of Islam's two holiest cities, Mecca and Medina, is a
source of a perennial flow of religious tourists, with millions of
Muslims visiting Saudi Arabia annually for the Hajj pilgrimage.
According to the Saudi Tourism and Antiquities Committee (SCTA) data, of
the 17 million tourists who visited Saudi Arabia in 2013, 6.9 million
(40.6%) did so for religious reasons.

- The tourism sector heavily relies on international arrivals; inbound
tourism expenditure reached SAR58.5 billion (US$15.6 billion) in 2013,
compared to SAR41.6 billion (US$11.1 billion) from domestic travel in
the same year. This is despite domestic volume being more than
international arrivals, with 19.4 million domestic trips against 13.2
million international arrivals.

- There has been a recorded decline in domestic tourism in Saudi Arabia,
despite a rise in mean household income across the country. The major
reason behind this decrease has been the increasing preference of
outbound travel over domestic travel among Saudi Arabian residents.
Furthermore, owing to the lack of entertainment options such as cinemas
and restaurants allowing men and women to dine together, the Saudis
preferred to travel outbound. Infrastructure development works in and
around the holy cities of Mecca and Medina also impacted the flow of
domestic tourists.

- Religious tourism is the main incentive of travel to Saudi Arabia.
Therefore, countries with large Muslim populations are among the major
source countries for Saudi Arabia. The presence of the Islamic holy
sites Mecca and Medina fuel this demand, particularly during the annual
Hajj pilgrimage. Growth was recorded in inbound tourism to Saudi Arabia
during the review period, as the number of international arrivals rose
from 10.9 million in 2009 to 13.2 million in 2013, at a CAGR of 5.00%.
Inbound tourist expenditure increased at a robust CAGR of 14.62%, from
SAR34.0 billion (US$9.0 billion) in 2009 to SAR58.5 billion (US$15.6
billion) in 2013.

- The preference for air as the mode of transport for outbound travelers
is expected to increase, with the number of outbound tourists traveling
by air increasing from 14.4 million in 2013 to 25.1 million in 2018. The
entry of Qatar Airways in 2014 and the launch of new Saudi Gulf Airline
in 2015 will increase competition in the airlines market, consequently
making air services available to customers at competitive prices and
also providing access to a vast network.

- In 2012, the Saudi General Authority for Civil Aviation (GACA)
announced that foreign airlines will be allowed to apply for route
authority to operate domestic flights. In December 2012, Qatar Airways
became the first foreign airline to obtain a license to operate on
domestic and international routes based from Saudi Arabia. Qatar's Al
Maha airline will start operating by the third quarter of 2014 with a
fleet of 10 aircraft, with plans to build a fleet of 50 aircraft in
Saudi Arabia. The huge domestic market in Saudi Arabia, which is
currently served by Saudi Airlines and budget carrier Flynas, will see
an increase in competition after this.

- Saudi Arabia, with its increasing domestic and international tourist
volumes driving the growing demand for accommodation, has also seen an
increase in investment in the hotel market. Riyadh, Jeddah and Medina
are the hubs of hotel investment in the country due to the abundance of
business and religious tourists in these cities.

- The demand for car rental services in Saudi Arabia suffers from
seasonality, with high demand recorded during the peak seasons such as
Hajj and Umrah, Eid, Ramadan and the school summer break. In addition to
high bookings, car rental prices also go up during peak seasons.

- The tourism sector in Saudi Arabia is flourishing rapidly. However,
the growth in the number of tour operators and travel agents in the
country has not been in line with the growth in the number of tourists.
According to the SCTA, there were only 160 tour operators in the Saudi
market in 2013, which cater mainly to religious tourists.